Summit Midstream Partners, LP Reports Third Quarter 2022 Financial and Operating Results – QNT Press Release


HOUSTON, Nov. 3, 2022 /PRNewswire/ — Summit Midstream Partners, LP (NYSE:SMLP) ("Summit", "SMLP" or the "Partnership") announced today its financial and operating results for the three months ended September 30, 2022, and also reiterated its expectation of achieving the high-end of its previously announced 2022 Adjusted EBITDA guidance range of $205 to $220 million.

Third Quarter 2022 Highlights & Management Commentary

  • Net loss of $7.8 million, primarily driven by non-cash impairments associated with the Bison sale
  • Increased adjusted EBITDA by 8.5% to $54.7 million from $50.5 million for the second quarter of 2022
  • Increased Distributable Cash Flow by 16.2% to $29.8 million from $25.6 million for the second quarter of 2022
  • Completed the sale of the Bison Gas Gathering System in the Williston Basin for $40 million in cash
  • Reduced total debt by $66 million and increased liquidity to $319.6 million
  • Announced $305 million synergistic and accretive bolt-on acquisitions in the DJ Basin at an attractive 4.0x 2023 projected EBITDA multiple; partially financed with a new issuance of $85 million of 8.5% Senior Secured Second Lien Notes due 2026
  • Expect 2023 Adjusted EBITDA to exceed $300 million and generate more than $125 million of free cash flow inclusive of the DJ Basin acquisitions

Heath Deneke, President, Chief Executive Officer and Chairman, commented, "Summit's third quarter 2022 financial and operating results further positions us to achieve the high-end of our previously announced 2022 Adjusted EBITDA guidance range of $205 to $220 million. We continue to see strong momentum in all our operating segments, with 39 wells connected during the quarter and another 40 wells expected in the fourth quarter. We remain excited about the productivity of the new wells that have been brought online, particularly in the Utica shale, Barnett shale and Williston basin. We experienced nearly 40% volume growth behind OGC with the addition of only 12 new wells. In the Barnett, 8 new wells were brought online and while volumes were relatively flat sequentially, we expect volumes to increase in the fourth quarter. Liquids volumes increased over 20% in the Williston basin and with several new wells expected in the near term, we expect volumes to continue to grow.

Given our strong momentum in the back-half of 2022 and the expected addition of more than 275 wells in 2023, pro forma for the DJ Basin acquisitions, we expect 2023 Adjusted EBITDA to exceed $300 million, resulting in more than $125 million in free cash flow and a meaningful reduction in total leverage to approximately 4.25x at year-end 2023. To the extent that similar well connection activity we are anticipating in 2023 across our operating footprint persists into 2024, we would expect to approach our long-term total leverage target of sub-3.5x in 2024, a major milestone for all of Summit's stakeholders. We are actively pursuing strategic and commercial initiatives that could further accelerate de-levering and believe that our achievements in 2022 illustrate the flexibility of our business. The divestitures of Bison and Lane G&P this year, significant free cash flow generation year-to-date and the fully committed $85 million debt financing, positioned us to announce the synergistic and accretive bolt-on acquisitions in the DJ Basin. These transactions met all our key investment criteria and align with our corporate strategy to maximize value through disciplined investing, focusing on strategic, synergistic, and high free cash flowing assets that align with our balance sheet and ESG objectives."

Third Quarter 2022 Business & Financial Highlights

SMLP's average daily natural gas throughput for its wholly owned operated systems decreased by 23 MMcf/d to 1,177 MMcf/d, and liquids volumes increased by 12 Mbbl/d to 66 Mbbl/d, relative to the second quarter of 2022. The decline in natural gas volumes was due to the Lane G&P divestiture on June 30, 2022 which contributed 27 MMcf/d in the second quarter of 2022. OGC natural gas throughput increased 221 MMcf/d to 783 MMcf/d and generated $7.7 million of adjusted EBITDA net to SMLP for the third quarter of 2022. Double E Pipeline gross volumes transported were flat at 314 MMcf/d and generated $5.1 million of adjusted EBITDA net to SMLP for the third quarter of 2022. SMLP's customers are currently operating eight drilling rigs on acreage behind SMLP's gathering systems and we expect approximately 40 wells to be connected in the fourth quarter of 2022.

Natural gas price driven segments:

  • Natural gas price-driven segments had combined quarterly segment adjusted EBITDA of $41.5 million and combined capital expenditures of $3.0 million in the third quarter of 2022.
  • Northeast segment adjusted EBITDA of $19.4 million increased by $0.8 million from the second quarter of 2022, primarily due to a 0.8% increase in volume on our wholly-owned systems and a 39% increase in volume at our OGC joint venture. We connected 4 new wells behind our wholly-owned SMU system in August 2022 that produced approximately 100 MMcf/d during the third quarter. We experienced nearly 40% volume growth behind our OGC joint venture with the addition of only 12 new wells connected to the system during the quarter. There are currently five rigs running and over 25 DUCs behind the SMU and OGC systems. We expect another 5 to 10 wells to come online in the fourth quarter of 2022 behind OGC.
  • Piceance segment adjusted EBITDA of $14.2 million decreased by $1.1 million from the second quarter of 2022. Volume throughput decreased by 2.1% from the prior quarter, primarily due to natural production declines and a $0.8 million increase in operating expenses primarily due to a $0.6 million increase in estimated annual property taxes. We now expect 17 wells currently being drilled to be turned-in-line by one of our anchor customers in the first quarter of 2023, due to a slight delay in completion timing, but don't expect this to materially impact 2022 financial results.
  • Barnett segment adjusted EBITDA of $7.9 million increased by $0.6 million relative to the second quarter of 2022 primarily due to a 2.0% increase in volume throughput and a $0.2 million increase in natural gas sales. There were 8 new wells connected to the system during the quarter and while segment volumes were relatively flat sequentially, we expect continued growth in volumes in the fourth quarter of 2022. The next set of wells to come online are expected in the first quarter of 2023.

Oil price driven segments

  • Oil price-driven segments generated $19.1 million of combined segment adjusted EBITDA in the third quarter of 2022 and had combined capital expenditures of $2.7 million.
  • Permian segment adjusted EBITDA of $4.9 million was flat relative to the second quarter of 2022. Double E gross volume throughput averaged 314 MMcf/d during the third quarter of 2022, flat relative to the second quarter of 2022. There continue to be over 100 rigs running in Eddy and Lea Counties, New Mexico, which we believe will be a catalyst for additional volumes and long-term take-or-pay contracts behind our Double E joint venture.
  • Rockies segment adjusted EBITDA of $14.3 million increased $0.4 million relative to the second quarter of 2022, primarily due to a 12 Mbbl/d, or 22% increase in liquids volumes. Volume growth was primarily driven by a return of previously interrupted volumes from the winter storm during the second quarter of 2022 and 9 new wells connected during the quarter. The segment was negatively impacted by a one-time $0.7 million contract adjustment attributable to our DJ Basin business. There are currently two rigs running with over 50 DUCs behind the system and approximately 40 wells expected to come online in the fourth quarter of 2022.

The following table presents average daily throughput by reportable segment for the periods indicated:

 

Three Months Ended

September 30,

Nine Months Ended

September 30,

2022

2021

2022

2021

Average daily throughput (MMcf/d):

Northeast (1)

637

751

670

784

Rockies

31

36

30

36

Permian (1)

24

18

28

Piceance

305

321

310

329

Barnett

204

201

200

197

Aggregate average daily throughput

1,177

1,333

1,228

1,374

Average daily throughput (Mbbl/d):

Rockies

66

63

62

64

Aggregate average daily throughput

66

63

62

64

Ohio Gathering average daily throughput (MMcf/d) (2)

783

503

648

525

Double E average daily throughput (MMcf/d) (3)

314

272

__________

(1)

Exclusive of Ohio Gathering and Double E due to equity method accounting.

(2)

Gross basis, represents 100% of volume throughput for Ohio Gathering, subject to a one-month lag.

(3)

Gross basis, represents 100% of volume throughput for Double E.

 

The following table presents adjusted EBITDA by reportable segment for the periods indicated:

 

Three Months Ended

September 30,

Nine Months Ended

September 30,

2022

2021

2022

2021

(In thousands)

(In thousands)

Reportable segment adjusted EBITDA (1):

Northeast (2)

$         19,353

$        20,720

$        57,989

$        64,274

Rockies

14,262

18,722

43,991

49,606

Permian (3)

4,882

1,422

13,848

4,014

Piceance

14,249

18,908

45,367

60,266

Barnett

7,864

9,637

24,397

26,542

Total

$         60,610

$        69,409

$       185,592

$       204,702

Less:  Corporate and Other (4)

5,868

8,265

23,630

20,985

Adjusted EBITDA

$         54,742

$        61,144

$       161,962

$       183,717

__________

(1)

We define segment adjusted EBITDA as total revenues less total costs and expenses, plus (i) other income, (ii) our proportional adjusted EBITDA for equity method investees, (iii) depreciation and amortization, (iv) adjustments related to MVC shortfall payments, (v) adjustments related to capital reimbursement activity, (vi) unit-based and noncash compensation, (vii) impairments and (viii) other noncash expenses or losses, less other noncash income or gains.

(2)

Includes our proportional share of adjusted EBITDA for Ohio Gathering, subject to a one-month lag. We define proportional adjusted EBITDA for our equity method investees as the product of (i) total revenues less total expenses, excluding impairments and other noncash income or expense items and (ii) amortization for deferred contract costs; multiplied by our ownership interest during the respective period.

(3)

Includes our proportional share of adjusted EBITDA for Double E. We define proportional adjusted EBITDA for our equity method investees as the product of total revenues less total expenses, excluding impairments and other noncash income or expense items; multiplied by our ownership interest during the respective period.

(4)

Corporate and Other represents those results that are not specifically attributable to a reportable segment or that have not been allocated to our reportable segments, including certain general and administrative expense items and natural gas and crude oil marketing services.

 

Capital Expenditures

Capital expenditures totaled $6.2 million in the third quarter of 2022, inclusive of maintenance capital expenditures of $2.3 million. Capital expenditures in the third quarter of 2022 were primarily related to growth projects to connect new pad sites in our Northeast and Rockies segments. With $21.0 million of capital expenditures year-to-date, we expect total capital expenditures in 2022 to be around the midpoint of our original guidance range of $20 million to $35 million.

 

Nine Months Ended September 30,

2022

2021

(In thousands)

Cash paid for capital expenditures (1):

Northeast

$           7,520

$           6,772

Rockies

6,204

3,512

Permian

1,406

349

Piceance

4,350

(32)

Barnett

248

731

Total reportable segment capital expenditures

$         19,728

$         11,332

Corporate and Other

1,227

448

Total cash paid for capital expenditures

$         20,955

$         11,780

__________

(1)

Excludes cash paid for capital expenditures by Ohio Gathering and Double E due to equity method accounting.

 

Capital & Liquidity

As of September 30, 2022, SMLP had $85 million drawn under its $400 million ABL Revolver and $309.1 million of borrowing availability, after accounting for $5.9 million of issued, but undrawn, letters of credit. As of September 30, 2022, SMLP's gross availability based on the borrowing base calculation in the credit agreement was $563 million, which is $163 million greater than the $400 million of lender commitments to the ABL Revolver. Pro forma for the previously announced Outrigger DJ Midstream LLC and Sterling Energy Investments LLC acquisitions, SMLP expects to have approximately $325 million drawn under its $400 million ABL Revolver at year end 2022. As of September 30, 2022 SMLP was in compliance with all financial covenants, including interest coverage of 2.57x relative to a minimum interest coverage covenant of 2.0x and first lien leverage ratio of 0.38x relative to a maximum first lien leverage ratio of 2.5x. As of September 30, 2022, SMLP reported a total leverage ratio of 5.21x.

As of September 30, 2022, the Permian Transmission Credit Facility balance was $156.6 million, a reduction of $3.4 million relative to the December 31, 2021 balance of $160.0 million due to scheduled mandatory amortization.  The Permian Transmission Term Loan remains non-recourse to SMLP.

MVC Shortfall Payments

SMLP billed its customers $7.8 million in the third quarter of 2022 related to MVC shortfalls. For those customers that do not have MVC shortfall credit banking mechanisms in their gathering agreements, the MVC shortfall payments are accounted for as gathering revenue in the period in which they are earned. In the third quarter of 2022, SMLP recognized $10.1 million of gathering revenue associated with MVC shortfall payments. SMLP had no adjustments to MVC shortfall payments in the third quarter of 2022. SMLP's MVC shortfall payment mechanisms contributed $10.1 million of total adjusted EBITDA in the third quarter of 2022.

 

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Three Months Ended September 30, 2022

MVC Billings

Gathering
revenue

Adjustments
to MVC
shortfall
payments

Net impact to
adjusted
EBITDA

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